Criteria For The Allocation Of LNG Cargoes Under The Portfolio Contracts

The portfolio players are trading companies that have access to multiple supply sources around the world, fleets of LNG carriers, capacity rights at regasification terminals in various regions and large customer portfolios. The companies with the largest LNG portfolios are BP, Shell, TotalEnergies, Chevron and ExxonMobil. They offtake the LNG production at various liquefaction terminals under medium or long-term contracts for resale under short, medium or long-term contracts.
In the offtake contracts, the LNG cargoes are delivered FOB basis at the liquefaction terminals, with no destination restriction and profit sharing provisions. The destination freedom in the offtake contracts allows the portfolio players to allocate the LNG cargoes to the customers that offer the highest revenue. The FOB contract price is the origin market benchmark price or an oil-indexed price.
In the resale contracts that are referred to as "portfolio contracts", the LNG cargoes have to be delivered DES basis at the regasification terminals specified by the buyers.
The portfolio contracts do not need to mention the supply source but only that the LNG cargoes will be delivered from the seller`s portfolio.
The portfolio contracts provide various options to buyers, such as the option to request adjustments to the Annual Delivery Programme in respect of the number of LNG cargoes to be delivered and in respect of the Scheduled Delivery Windows in order to be able to deal with the changes in demand.
The DES price in the portfolio contracts is the destination market benchmark price.
The portfolio players allocate LNG cargoes to various destinations taking into consideration the following criteria:
- the FOB prices of the LNG in the offtake contracts;
- the DES prices of the LNG in the destination markets;
- the cargoes` quality characteristics and the regasification terminals` quality specifications, particularly the Wobbe Index Value range accepted by the regasification terminals;
- the LNG volumes required to be delivered;
- the Scheduled Delivery Windows agreed in the Annual Delivery Programmes;
- the sea distances from the liquefaction terminals to the regasification terminals and the transportation costs;
- the time spent by the LNG carriers on the sea routes from the liquefaction terminals to the regasification terminals;
- the compatibility of their LNG carriers with the liquefaction and regasification terminals, i.e. which LNG carriers from their fleet is approved by both the liquefaction and regasification terminals.

by Vlad Cioarec, International Trade Consultant

This article has been published in Commoditylaw`Gas Trade Review Edition No.5.